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Modeling Futures Contracts

In: Data Modeling of Financial Derivatives

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  • Robert Mamayev

Abstract

Most of the modeling principles we learned in the last chapter are applicable to the subject of this chapter: futures contracts (aka futures). Futures share many features with forward contracts, but a fundamental difference between them is how each one approaches the risk factor. Forward contracts are risky, with the shadow of a default always looming. Futures contracts, on the other hand, are deemed to be less risky because they are traded on exchanges. Exchange-imposed rules buffer investors against some of the risk because they make default events less likely. Every major exchange has implemented a set of intricate rules that all concerned parties must follow and obey. Moreover, each exchange’s enforcement of these rules guarantees that a contract has a good chance of being honored by each contract participant.

Suggested Citation

  • Robert Mamayev, 2013. "Modeling Futures Contracts," Springer Books, in: Data Modeling of Financial Derivatives, chapter 0, pages 85-112, Springer.
    • Handle: RePEc:spr:sprchp:978-1-4302-6590-0_5
    DOI: 10.1007/978-1-4302-6590-0_5
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